A dynamic stochastic frontier model with threshold effects: U.S. bank size and efficiency

Pavlos Almanidis, Mustafa Karakaplan and Levent Kutlu
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Pavlos Almanidis: International Tax Services, Transfer Pricing, Ernst & Young LLP

Journal of Productivity Analysis, 2019, vol. 52, issue 1, No 5, 69-84

Abstract: Abstract Common/Single frontier methodologies that are used to analyze bank efficiency and performance can be misleading because of the homogeneous technology assumption. Using the U.S. banking data over 1984-2010, our dynamic methodology identifies a few data-driven thresholds and distinct size groups. Under common frontier assumption, the largest banks appear to be 22% less efficient on average than how they are in our model. Also, in the common frontier model, smaller banks seem to be relatively more efficient compared to their larger counterparts. Hence, common policies or regulations may not be well-balanced about controlling the banks of different sizes on the spectrum.

Keywords: Dynamic Stochastic Frontier; Bank Efficiency; Bank Heterogeneity (search for similar items in EconPapers)
JEL-codes: C13 C23 D24 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11123-019-00565-6

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